6th Jun 2005 07:01
Alternative Networks06 June 2005 Alternative Networks plc Interim results for the six months to 31 March 2005 Alternative Networks plc, a leading independent business-to-business telecomsreseller, today reports interim results for the six months to 31 March 2005. Unaudited six months to 31 March 2005 2004 Change £000 £000Underlying performance*Turnover 22,385 19,485 15%Operating profit 1,893 1,664 14%EBITDA 2,087 1,827 14%Profit before taxation 1,923 1,751 10%Earnings per share - basic 3.4p 2.4p 42%- diluted 3.2p 2.4p 33% Statutory performanceTurnover 22,385 19,670 14%Operating profit 1,705 1,680 1%EBITDA 1,941 1,843 5%Profit before taxation 1,734 1,766 (2%)Earnings per share - basic 2.9p 2.4p 21%- diluted 2.8p 2.4p 17% * Results before goodwill amortisation, discontinued operations and otherexceptional items. Operational highlights • Successful listing on the AIM on 18 February 2005• Gross profits have increased £1.3m year on year, up 18%• Mobile revenues up 57%• Three largest clients re-signed on extended contracts James Murray, Chief Executive Officer commented: "Our strategy has delivered strong underlying growth, driven by a substantialincrease in mobile revenues. "We have been delighted by the support we received from institutions when welisted on AIM. The listing has provided financial flexibility, a higher profileand the opportunity to accelerate business development." 6 June 2005 Enquiries: Alternative Networks plcJames Murray, Chief Executive Officer 0870 190 7444Edward Spurrier, Chief Financial Officer College HillAdrian Duffield/Corinna Dorward 020 7457 2815/2803 Chairman's Statement I am very pleased to report continued growth and profitability in our maideninterim results for the six months ended 31 March 2005. Results summary Underlying sales (excluding acquired and discontinued operations) grew 15%, inspite of a market backdrop of falling prices, as the OFCOM Mobile terminationrate cuts were passed onto our customers. Gross profits have increased £1.3myear on year, increasing in each of the three reporting divisions. Gross marginshave increased more than 1% year on year. Net profits before tax areessentially unchanged. However, the recent flotation of the business as well asthe pre-float restructuring has resulted in additional costs in the business,and some have been classified as exceptional. We have set out the summaryresults to illustrate the impact of these. Strategy and Outlook The Company remains passionately focussed on the organic growth of its businessas one of the leading independent business to business telecoms resellers in theUK. We are also continuing our strategy of acquiring bolt-on customer bases. InJanuary 2005, the Company purchased a base of 1,300 customers in the Midlandsfor £0.72m in cash. In the first 3 months, this business has delivered slightlyahead of target, and contributed £0.08m to operating profits. More recently, we have further developed our relationships with our threelargest clients in some cases winning additional services and in each case,re-signing them on extended contracts for one and two year periods. It is highlyencouraging for the future, and a testament to our claims that we are able todeliver a high quality and diverse range of products and we can successfullytailor our service offering to the larger client's needs. Kenneth McGeorge Chief Executive's Review Introduction In the six month period to 31 March 2005, much of the Board's focus has been onthe listing on the Alternative Investment Market that was completed on 18February 2005. We are delighted to have the support of our new shareholders. Strategy The Board's strategy is to consolidate the Company's position at the head of thebusiness to business Telecoms reseller market. This has involved: • Continuing to expand the Company's product suite In the last year, newproducts have been: - • Wholesale line rental product, where we take on the billing of BT'sline rental charge for our customers. This is being well received by existingand new customers and in March accounted for over 10% total fixed line networkservices sales for the first time. • Blackberry mobile data products - since the launch last year, theCompany has added over 1,500 connections by end March 2005. Connections in thesix month period under review were up 50% over the previous period. • Organically growing our customer base - we have added net 70 newcustomers over the period and now have more than 2,500 business customers,excluding the acquisition made in January 2005. Of these 30% now take more thanone product. The acquisition brought in a base of 1,300 smaller customercontracts in Birmingham. • Geographical expansion - the acquisition has also brought with it alow cost regional presence in the Midlands so we now, in addition to London,have sales offices in Birmingham, Leeds, Bracknell, Manchester and Bristol. Results I am pleased to report a solid performance with continued growth in grossprofits in all product groupings, The underlying operating profit growth of 14%was a good performance in what has been an exceptionally busy period. The seasonality of sales towards the second half is marginally more pronouncedthis year as the quiet Easter period fell in the first 6 months, unlike 2004. The timing of Easter has also affected our reported cash generation in theperiod, with a deferral of debtor collection particularly on the recent February2005 bills sent out mid March. The cash inflow from operations was much improved at £0.25m inflow rather thanan outflow in the previous year, but was also reduced by the continued repaymentof trade debt beyond terms to its main suppliers. This programme, which has runover the last 18 months, has now been completed and the Company is trading toterms with all its main suppliers. As stated at the time of our listing on AIM, an interim dividend was paid inJanuary 2005. There is no interim dividend declared with these results, but theBoard does intend to pay a final dividend. Review of operations At the time of our IPO we presented financial information splitting the revenuestreams and gross profits of three main product areas to foster transparency inreviewing our performance. This same reporting format is used below. Network Services - fixed line telecoms • The headline sales were 8% reduced year on year at £9.3m (2004:£10.1m). This reflects the impact of OFCOM mobile termination rate cuts, whichnot only reduced absolute revenues but also afforded the clients the opportunityto renegotiate their contracts earlier than anticipated. Prior year salesinclude £0.2m in respect of discontinued operations. • Underlying sales in Network services remain buoyant, with the Companysigning 50 net additional customers in the period. • New wholesale line rental ("WLR") contract revenues exceeded ourexpectations but the speed to connection was delayed as the transfer of servicesfrom BT remains a highly complex operation. • Gross profits growth was strong, up 8% to £4.18m. Gross marginsincreased by 5% to 44% (Year ended 30 September 2004 : 39%) points as the impactof the mobile termination rate cuts fed in immediately before being passed on tothe customers. Mobile • Revenues increased by 57% on the prior period to £8.5m (2004: £5.4m). • ARPU was ahead of target, but down 5% to £74 per month (Year ended 30September 2004: £78) due to the dilutive impact of the strong growth in lowermargin Blackberry units being used for data services only. • Net additions of corporate subscribers in the period were 3,200, asthe customer base increased to 17,516 at 31 March 2005 (2004:11,438). • The Company has been successful in contracting larger businesscustomers. Significant new customers included Kidde plc and Channel 4. Duringthe period under review, annualised churn increased 5% points to 21%. It isnoticeable that whilst it has been well documented that the UK market is morecompetitive, the churn rates of the Company also had a seasonal uplift in thefirst 6 months of 2004, rising to 20%. This may be more due to the fact that theNetwork Operators tend to be very competitive prior to their March year ends. • Gross profits increased 45% to £2.34m. Gross margins in the first 6months were 27.6% (Year ended 30 September 2004: 27.5%). Advanced Solutions • Revenues increased 11% to £4.6m (2004: £4.1m). This includes £0.12m inrespect of new acquisitions. The majority of these revenues relate to nongeographic number solutions. • Hardware sales were virtually unchanged year on year, but modestgrowth has been masked by scheduling delays in completing new systeminstallations. Deferred income increased £0.2m over the levels at 30 September2004, and these sales will come into the second half. • Data revenues were up 8% on the prior period. The market continues tobe dominated by clients substituting leased line circuits for broadband. • Gross profits have increased 12% to £2.44m. Gross margins have nudgeddown to 53.3% from 54.7% for the full year of 2004, as the full year impactfeeds through from signing our biggest customer on lower than the Group averagemargin. Our people The Company continues to work on recruiting and retaining the highest qualityindividuals in this highly competitive market place. In this regard, one of thekey events of the period was the launch in December 2004 of the staff EMI shareoption scheme under which over 80 staff were granted options in the Company.These options are contingent on the Company hitting challenging profit beforetax and EPS targets, and we are delighted that the interests of the seniormanagers and the Board are closely aligned to those of our new institutionalshareholders. Outlook The underlying increase in operating profits of 14%, stated after increasedinvestment in broadening and improving our sales capabilities in the period, hasdelivered the growth the Board expected. The momentum in the business remains strong and we are confident for the tradingoutlook. James Murray Profit & Loss AccountFor the period ended 31 March 2005 Notes Unaudited Unaudited Audited Six months to Six months to Year to 30 31 March 2005 31 March 2004 September £000 £000 2004 £000Turnover 22,266 19,485 40,708Acquired customer contracts 4 120 - -Discontinued operations - 185 319Total turnover 22,386 19,670 41,027Cost of sales (13,429) (12,012) (25,038)Gross profit 8,957 7,658 15,989Administrative expenses (7,253) (5,979) (12,792)Operating profit:Continuing operations 1,628 1,663 3,171Acquired customer contracts 4 76 - -Discontinued operations - 16 26Total operating profit 1,704 1,679 3,197Total operating profit - analysedOperating profit before national 1,892 1,680 3,204insurance on share options, goodwillamortisation and operating exceptionalitemsNational insurance on shares issued to 5 (48) - -employee benefit trustUITF 17 charge in respect of share 5 (31) - -schemesAmortisation of goodwill 4 (42) (1) (7)Operating exceptional items in respect of 5 (67) - -share schemes 1,704 1,679 3,197Profit on sale of business - - 46Interest receivable and similar income 71 119 275Interest payable and similar charges (41) (32) (67)Profit on ordinary activities before 1,734 1,766 3,451taxationTaxation on profit on ordinary activities (532) (538) (1,051)Profit on ordinary activities after 1,202 1,228 2,400taxationDividends 3 (200) (450) (450)Retained profit for the financial year 5 1,002 778 1,950 The Company has no gains or losses other than the profit above and therefore noseparate statement of total recognised gains and loss has been presented. There is no difference between the profit on ordinary activities before taxationand the retained profit for the years stated above and their historical costequivalents. Balance SheetAs at 31 March 2005 Notes Unaudited Unaudited Audited 31 March 31 March 30 September 2004 2005 2004 £000 £000 £000Fixed assetsIntangible assets 4 710 29 29Tangible assets 2,221 2,316 2,330Investments - - -Total fixed assets 2,931 2,345 2,359Current assetsStock - finished goods 119 83 77Debtors 10,117 8,561 9,041Cash at bank and in hand 3,729 6,602 6,170 13,965 15,246 15,288Creditors: amounts falling due within one (9,764) (11,464) (10,352)yearNet current assets 4,201 3,782 4,936Total assets less current liabilities 7,132 6,127 7,295Creditors: amounts falling due in more (1,069) (1,087) (1,083)than one yearNet assets 6,063 5,040 6,212Capital and reservesCalled up share capital 5 55 1 1Capital redemption reserve 5 - - -Share premium 5 4,123 96 96Profit and loss account 5 1,885 4,943 6,115Total equity shareholders' funds 5 6,063 5,040 6,212 Cash flow statementFor the period ended 31 march 2005 Notes Unaudited Unaudited Audited Six months to 31 Six months to Year to 30 March 2005 31 March 2004 September 2004 £000 £000 £000 Net cash inflow/(outflow) from 6 252 (157) 934continuing operating activitiesReturns on investments andservicing of financeInterest received 71 119 275Interest paid (41) (32) (66)Interest element of finance - (1) (1)lease paymentsNet cash inflow from returns on 30 86 208investments and servicing offinanceTaxationUK corporation tax paid (519) - (1,471)Capital expenditure andfinancial investmentPurchase of tangible fixed (85) (178) (370)assetsNet cash outflow for capital (85) (178) (370)expenditure and financialinvestmentAcquisitions and disposalsNet payments to acquire 4 (724) (30) (30)customer contractsReceipts from sale of business - - 55Net cash (outflow)/inflow from (724) (30) 25acquisitions and disposalsEquity dividends paid 3 (200) (450) (450)Net cash outflow before (1,246) (729) (1,124)financingFinancingIssue of ordinary share capital 5 4,000 - -Share issue costs 5 (750) - -Purchase of own shares 5 (4,432) - -Capital elements of finance - (10) (18)lease paymentsCapital element of loan (13) (46) (75)repaymentsNet cash outflow from financing (1,195) (56) (93)Decrease in net cash 7 (2,441) (785) (1,217) Notes to the Accounts 1. Principal accounting policies The financial information contained in this interim statement does notconstitute accounts as defined by section 240 of the Companies Act 1985. Theinterim report has neither been audited nor reviewed by the Company's auditors.The financial information for the year ended 30 September 2004 is derived fromthe statutory accounts for that period that have been delivered to the Registrarand included an audit report, which was unqualified and did not contain anystatement under section 237 of the Companies Act 1985. The interim financial information has been prepared on the basis of theaccounting policies set out in the statutory accounts for the year ended 30September 2004. Fixed annual charges are apportioned to the interim period onthe basis of time elapsed. Other expenses are accrued in accordance with thesame principles used in the preparation of the annual accounts, as modified bythe introduction of new accounting standards. 2. Earnings per share Earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares in issue during asix month period. The weighted average of shares in issue during the six monthsto 31 March 2005 was 41,457,692. There are 2,100,000 share options that give rise to a dilution during the sixmonths to 31 March 2005. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. Supplementary basic and diluted EPS have been calculated to exclude the effectof goodwill, operating exceptional items and discontinued operations in orderthat the effect of these items on reported earnings can be fully appreciated. Unaudited Unaudited Unaudited Six months to 31 March Six months to 31 March Year to 30 2005 2004 September 2004 Earnings Per share Earnings Per share Earnings Per share amount amount amount £000 pence £000 pence £000 penceBasic EPSEarnings attributable to 1,202 2.9 1,228 2.4 2,400 4.8ordinary shareholdersAmortisation of goodwill 42 0.1 1 - 7 -Exceptional items 146 0.4 - - - -Discontinued operations - - (16) - (26) (0.1)Adjusted earnings 1,390 3.4 1,213 2.4 2,381 4.7 Diluted EPSEarnings attributable to 1,202 2.8 1,228 2.4 2,400 4.8ordinary shareholdersAmortisation of goodwill 42 0.1 1 - 7 -Exceptional items 146 0.3 - - - -Discontinued operations - - (16) - (26) (0.1)Adjusted earnings 1,390 3.2 1,213 2.4 2,381 4.7 3. Interim dividend On 19 January 2005 an interim dividend of £14.60 per £0.05p ordinary share waspaid and this amounted to a dividend of £200,000. This dividend is equivalent to0.45p ordinary shares in issue. 4. Acquisitions On 11 January 2005 the Company acquired customer contracts including the brandname "Freeline" for a cash consideration of £724,000 including £8,000 of costs.Nil net assets were acquired and there were no fair value adjustments. Theacquisition is being amortised on a straight-line basis over 5 years which isthe anticipated life of the asset. 5. Movements in share capital and reserves Share Share premium Profit and Total capital loss £000 £000 £000 £000Balance at 1 October 2004 1 96 6,115 6,212Shares repurchased (including - - (4,432) (4,432)expenses)Share capitalisation 49 (49) - -Issue of shares for the employee - 831 - 831benefit trust (EBT)Shares held by EBT (UITF 38 - - (831) (831)adjustment)Proceeds of shares issued 5 3,995 - 4,000Share issue costs - (750) - (750)UITF 17 undervalue - - 31 31Retained profit for financial year - - 1,002 1,002Balance at 31 March 2005 55 4,123 1,885 6,063 On 31 October 2004 Chris Wilson, Marketing Director and co-founder resigned, andleft the business. On 2 November 2004, the Company purchased 855 shares for£4,405,000 cash and incurred costs in respect of this purchase of £27,000.These shares were subsequently cancelled and a capital redemption accountcreated of £214. On 17 December 2004, the Company undertook a 5:1 share split in respect of the£0.25p shares. On 22 December 2004 the Alternative Networks EMI scheme was established andunder this scheme qualifying options have been granted in accordance with theEnterprise Management Incentive regime. The total outstanding are 2,100,000 atan exercise price of the higher of £0.25p per share and the market value at thedate of grant. On 28 January the Directors allotted 684 shares of £0.05 each to the trustees ofthe EBT for a consideration of £831,000. These shares were issued at anundervalue and in accordance with UITF 17 this undervalue in is being writtenoff to the P&L account and credited to the P&L reserves over the vesting periodof 24 months. Costs of the share issue were £31,000 and have been offset againstthe share premium account in accordance with GAAP. On 2 February 2005, in accordance with the recommendation of the Directors, thesum of £49,000, being part of the amount standing to the credit of the sharepremium account, was capitalised and the directors were authorised and directedto distribute this sum to the members of the Company on a pro rata basis. On 8 February 2005, the Company undertook a 40:1 share split in respect of the£0.05p shares. On 18 February, the Company listed on the Alternative Investment Market andissued 4 million ordinary shares at £1 per share. Costs of the share issue were£719,000 and have been offset against the share premium account. 6. Cash flow from operating activities Unaudited Unaudited Audited Six months Six months Year to to 31 March to 31 March 30 September 2005 2004 2004 £000 £000 £000 Continuing operating activitiesOperating profit 1,704 1,679 3,197Depreciation on tangible fixed assets 194 163 339Net amortisation of goodwill 42 1 7Loss on disposal of tangible fixed assets - - 1(Increase)/decrease in stocks (42) 9 14(Increase)/decrease in trade debtors (634) 379 227Increase in other debtors and prepayments (442) (597) (923)Decrease in trade creditors (586) (1,401) (2,724)(Decrease)/increase in other taxation and social (232) (188) 9securityIncrease/(decrease) in other creditors and 217 (202) 787accrualsOther non cash movements 31 - -Net cash inflow/(outflow) from operating 252 (157) 934activities 7. Reconciliation of net cash flow to movement in net funds Unaudited Unaudited Audited Six months to 31 Six months to Year to March 2005 31 March 2004 30 September 2004 £000 £000 £000 Decrease in cash in the period (2,441) (785) (1,217)Decrease in loans 13 46 75Decrease in finance leases - 10 18Decrease in net funds in the period (2,428) (729) (1,124)Net funds at beginning of the 5,061 6,185 6,185periodNet funds at end of the period 2,633 5,456 5,061 8. Analysis of movement of net funds Audited Unaudited As at Cash flow As at 1 October £000 31 March 2004 2005 £000 £000Cash balancesCash at bank and in 6,170 (2,441) 3,729hand DebtDebt due within one (26) (1) (27)yearDebt due after one year (1,083) 14 (1,069) (1,109) 13 (1,096)Net funds 5,061 (2,428) 2,633 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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